| FORWARD AIR CORP Item 1A Risk Factors 11 Item 1A Risk Factors In addition to the other information in this Form 10-K and other documents we have filed with the SEC from time to time, the following factors should be carefully considered in evaluating our business |
| Such factors could affect results and cause results to differ materially from those expressed in any forward-looking statements made by, or on behalf of, us |
| Our business is subject to general economic and business factors that are largely out of our control, any of which could have a materially adverse effect on our results of operations |
| Our business is dependent upon a number of factors that may have a materially adverse effect on the results of our operations, many of which are beyond our control |
| These factors include increases or rapid fluctuations in fuel prices, capacity in the trucking industry, insurance premiums, self-insured retention levels and difficulty in attracting and retaining qualified owner-operators and freight handlers |
| Our profitability would decline if we were unable to anticipate and react to increases in our operating costs, including purchased transportation and labor, or decreases in the amount of revenue per pound of freight shipped through our system |
| As a result of competitive factors, we may be unable to raise our prices to meet increases in our operating costs, which could result in a materially adverse effect on our business, results of operations and financial condition |
| Economic conditions may adversely affect our customers and the amount of freight available for transport |
| This may require us to lower our rates, and this may also result in lower volumes of freight flowing through our network |
| Customers encountering adverse economic conditions represent a greater potential for loss, and we may be required to increase our reserve for bad-debt losses |
| Our results of operations may be affected by seasonal factors |
| Volumes of freight tend to be lower in the first quarter after the winter holiday season |
| In addition, it is not possible to predict the short or long-term effects of any geopolitical events on the economy or on customer confidence in the United States, or their impact, if any, on our future results of operations |
| 11 ______________________________________________________________________ In order to continue growth in our business, we will need to increase the volume and revenue per pound of the freight shipped through our system |
| Our continued growth depends in significant part on our ability to increase the amount and revenue per pound of the freight shipped through our network |
| The amount of freight shipped through our network and our revenue per pound depend on numerous factors, many of which are beyond our control, such as economic conditions and our competitors’ pricing |
| Therefore, we cannot guarantee that the amount of freight shipped or the revenue per pound we realize on that freight will increase or even remain at current levels |
| If we fail to increase the volume of the freight shipped through our network or the revenue per pound of the freight shipped, we may be unable to maintain or increase our profitability |
| Because a portion of our network costs are fixed, we will be adversely affected by any decrease in the volume or revenue per pound of freight shipped through our network |
| Our operations, particularly our network of hubs and terminals, represent substantial fixed costs |
| As a result, any decline in the volume or revenue per pound of freight we handle may have an adverse effect on our operating margin and our results of operations |
| Typically, we do not have contracts with our customers and we cannot guarantee that our current customers will continue to utilize our services or that they will continue at the same levels |
| The actual shippers of the freight moved through our network include various manufacturers and distributors of electronics, telecommunications equipment, machine parts, trade show exhibit materials and medical equipment |
| Adverse business conditions affecting these shippers or adverse general economic conditions are likely to cause a decline in the volume of freight shipped through our network |
| We operate in a highly competitive and fragmented industry, and our business will suffer if we are unable to adequately address downward pricing pressures and other factors that may adversely affect our operations and profitability |
| The freight transportation industry is highly competitive, very fragmented and historically has had few barriers to entry |
| Our principal competitors include regional trucking companies that specialize in handling deferred air freight and national and regional less-than-truckload carriers |
| Our competition ranges from small operators that compete within a limited geographic area to companies with substantially greater financial and other resources, including greater freight capacity |
| We also face competition from air freight forwarders who decide to establish their own networks to transport deferred air freight |
| We believe competition is based on service, primarily on-time delivery, flexibility and reliability, as well as rates |
| Many of our competitors periodically reduce their rates to gain business, especially during times of economic decline |
| In the past several years, several of our competitors have reduced their rates to unusually low levels that we believe are unsustainable in the long-term, but that may materially adversely affect our business in the short-term |
| These competitors may cause a decrease in our volume of freight, require us to lower the prices we charge for our services and adversely affect both our growth prospects and profitability |
| Claims for property damage, personal injuries or workers’ compensation and related expenses could significantly reduce our earnings |
| Under DOT regulations, we are liable for property damage and personal injuries caused by owner-operators while they are operating on our behalf |
| We currently maintain liability insurance coverage that we believe is adequate to cover third-party claims |
| We have a self-insured retention of dlra500cmam000 per occurrence for each vehicle and general liability claim |
| We may also be subject to claims for workers’ compensation |
| We maintain workers’ compensation insurance coverage that we believe is adequate to cover such claims |
| We could incur claims in excess of our policy limits or incur claims not covered by our insurance |
| Any claims beyond the limits or scope of our insurance coverage may have a material adverse effect on us |
| Because we do not carry “stop loss” insurance, a significant increase in the number of claims that we must cover under our self-insurance retainage could adversely affect our profitability |
| In addition, we may be unable to maintain insurance coverage at a reasonable cost or in sufficient amounts or scope to protect us against losses |
| 12 ______________________________________________________________________ We have grown and may grow, in part, through acquisitions, which involve various risks, and we may not be able to identify or acquire companies consistent with our growth strategy or successfully integrate acquired businesses into our operations |
| We have grown through acquisitions and we intend to pursue opportunities to expand our business by acquiring other companies in the future |
| Acquisitions involve risks, including those relating to: * identification of appropriate acquisition candidates; * negotiation of acquisitions on favorable terms and valuations; * integration of acquired businesses and personnel; * implementation of proper business and accounting controls; * ability to obtain financing, on favorable terms or at all; * diversion of management attention; * retention of employees and customers; and * unexpected liabilities |
| Acquisitions also may affect our short-term cash flow and net income as we expend funds, potentially increase indebtedness and incur additional expenses |
| If we are not able to identify or acquire companies consistent with our growth strategy, or if we fail to successfully integrate any acquired companies into our operations, we may not achieve anticipated increases in revenue, cost savings and economies of scale, and our operating results may actually decline |
| We may have difficulty effectively managing our growth, which could adversely affect our results of operations |
| Our growth plans will place significant demands on our management and operating personnel |
| Our ability to manage our future growth effectively will require us to regularly enhance our operating and management information systems and to continue to attract, retain, train, motivate and manage key employees |
| If we are unable to manage our growth effectively, our business, results of operations and financial condition may be adversely affected |
| If we fail to maintain and enhance our information technology systems, we may lose orders and customers or incur costs beyond expectations |
| We must maintain and enhance our information technology systems to remain competitive and effectively handle higher volumes of freight through our network |
| We expect customers to continue to demand more sophisticated, fully integrated information systems from their transportation providers |
| If we are unable to maintain and enhance our information systems to handle our freight volumes and meet the demands of our customers, our business and results of operations will be adversely affected |
| If our information systems are unable to handle higher freight volumes and increased logistics services, our service levels and operating efficiency may decline |
| This may lead to a loss of customers and a decline in the volume of freight we receive from customers |
| Our information technology systems are subject to risks that we cannot control |
| Our information technology systems are dependent upon global communications providers, web browsers, telephone systems and other aspects of the Internet infrastructure that have experienced significant system failures and electrical outages in the past |
| Our systems are susceptible to outages from fire, floods, power loss, telecommunications failures, break-ins and similar events |
| Despite our implementation of network security measures, our servers are vulnerable to computer viruses, break-ins and similar disruptions from unauthorized tampering with our computer systems |
| The occurrence of any of these events could disrupt or damage our information technology systems and inhibit our internal operations, our ability to provide services to our customers and the ability of our customers to access our information technology systems |
| 13 ______________________________________________________________________ If we have difficulty attracting and retaining owner-operators or freight handlers, our results of operations could be adversely affected |
| We depend on owner-operators for most of our transportation needs |
| In 2005, owner-operators provided 64dtta9prca of our purchased transportation |
| Competition for owner-operators is intense, and sometimes there are shortages of available owner-operators |
| In addition, we need a large number of freight handlers to operate our business efficiently |
| During periods of low unemployment in the areas where our terminals are located, we may have difficulty hiring and retaining a sufficient number of freight handlers |
| If we have difficulty attracting and retaining enough qualified owner-operators or freight handlers, we may be forced to increase wages and benefits, which would increase our operating costs |
| This difficulty may also impede our ability to maintain our delivery schedules, which could make our service less competitive and force us to curtail our planned growth |
| If our labor costs increase, we may be unable to offset the increased labor costs by increasing rates without adversely affecting our business |
| As a result, our profitability may be reduced |
| A determination by regulators that our independent owner-operators are employees rather than independent contractors could expose us to various liabilities and additional costs |
| At times, the Internal Revenue Service, the Department of Labor and state authorities have asserted that owner-operators are “employees,” rather than “independent contractors |
| ” One or more governmental authorities may challenge our position that the owner-operators we use are not our employees |
| A determination by regulators that our independent owner-operators are employees rather than independent contractors could expose us to various liabilities and additional costs including, but not limited to, employment-related expenses such as workers’ compensation insurance coverage and reimbursement of work-related expenses |
| We operate in a regulated industry, and increased costs of compliance with, or liability for violation of, existing or future regulations could have a material adverse effect on our business |
| The DOT and various state agencies have been granted broad regulatory powers over our business, and we are licensed by the DOT, US Customs and the Federal Maritime Commission |
| If we fail to comply with any applicable regulations, our licenses may be revoked or we could be subject to substantial fines or penalties and to civil and criminal liability |
| We are also subject to various environmental laws and regulations dealing with the handling of hazardous materials |
| Our operations involve the risks of fuel spillage or seepage |
| If we are involved in a spill or other accident involving hazardous substances, our business and operating results may be adversely affected |
| Changes to current environmental laws or regulations may increase our operating costs and adversely affect our results of operations |
| The transportation industry is subject to legislative and regulatory changes that can affect the economics of our business by requiring changes in operating practices or influencing the demand for, and the cost of providing, transportation services |
| Heightened security concerns in the aftermath of the September 11, 2001 terrorist attacks may continue to result in increased regulations, including the implementation of various security measures, checkpoints or travel restrictions on trucks |
| In addition, there may be changes in applicable federal or state tax or other laws or interpretations of those laws |
| If this happens, we may incur additional taxes, as well as higher workers’ compensation and employee benefit costs, and possibly penalties and interest for prior periods |
| This could have an adverse effect on our results of operations |
| We are dependent on our senior management team, and the loss of any such personnel could materially and adversely affect our business |
| Our future performance depends, in significant part, upon the continued service of our senior management team |
| The loss of the services of one or more of these or other key personnel could have a material adverse effect on our business, operating results and financial condition |
| We must continue to develop and retain a core group of management personnel and address issues of succession planning if we are to realize our goal of growing our business |
| 14 ______________________________________________________________________ If our employees were to unionize, our operating costs would likely increase |
| None of our employees are currently represented by a collective bargaining agreement |
| However, we have no assurance that our employees will not unionize in the future, which could increase our operating costs and force us to alter our operating methods |
| Our shareholder rights plan, charter and bylaws and provisions of Tennessee law could discourage or prevent a takeover that may be considered favorable |
| We have a shareholder rights plan that may have the effect of discouraging unsolicited takeover proposals |
| The rights issued under the shareholder rights plan would cause substantial dilution to a person or group that attempts to acquire us on terms not approved in advance by our Board of Directors |
| In addition, our shareholder rights plan, charter and bylaws and provisions of Tennessee law may discourage, delay or prevent a merger, acquisition or change in control that may be considered favorable |
| These provisions could also discourage proxy contests and make it more difficult for shareholders to elect directors and take other corporate actions |
| Among other things, these provisions: * authorize us to issue preferred stock, the terms of which may be determined at the sole discretion of our Board of Directors and may adversely affect the voting or economic rights of our shareholders; and * establish advance notice requirements for nominations for election to the Board of Directors and for proposing matters that can be acted on by shareholders at a meeting |
| Our shareholder rights plan, charter and bylaws and provisions of Tennessee law may discourage transactions that otherwise could provide for the payment of a premium over prevailing market prices for our common stock, dlra0dtta01 par value per share (the “Common Stock”), and also could limit the price that investors are willing to pay in the future for shares of our Common Stock |